Price Sensitivity After A Period Of Recession
Everybody in the country, and indeed all around the world, will certainly have suffered the latest worldwide economic downturn in one way or another, either as a person or as a company operator. It may not have had a direct effect upon your own career or your individual earnings, but the knock-on effect of businesses losing income will have influenced the monetary predicament of the vast majority of folks. It was a very complex issue with far reaching implications.
The recession now seems to be over, or is at least on its way to an end, according to most economic authorities. Whilst it may not yet be the time to celebrate having survived the financial turmoil, it should be a time to start looking forward and preparing for a future within a steady economy. It is time to find some recession opportunities.
Businesses of almost all sizes, buying and selling in all sorts of marketplaces are no doubt going to need to change their operations in view of the recession. This might be after law is brought in to more closely control and keep an eye on the action of global economic organisations. Many businesses may also be looking at ways to make themselves more robust and able to endure economic instability in the long term.
The Recent Recession
The recession of the early 21st century started in 2007 and steadily propagated around the planet over the next couple of years. Many economic analysts attributed the cause of the recession to be the crash in the U.S. property market, which in turn affected the value of financial products linked into real estate assets. The expansion of the property market until that stage had motivated homeowners to refinance their primary homes in order to buy second or third homes with a view to a long-term gain.
This drop in value then uncovered the vulnerabilities of such a widespread system of credit agreements between international companies, particularly when much of the system was being supported by subprime lenders who were fiscal risks. A basic lack of third-party control of the monetary services market had permitted the creation of a highly complicated web of high-risk credit deals that relied upon a growing economy. Once the first debtors began to default on payments, the entire house of cards was quick to come down.
The following economic fallout saw several individuals lose their jobs as well as lose their properties, while many large, international companies were forced out of business. Government authorities all over the world had to bring in radical financial programs to support their own banking systems, and still now certain first world nations are struggling to make it through financially.
Even businesses that specialize at supplying floor renovation .had to adjust their own operations so as to survive the credit crunch.
The Impact on Business
It is probably reasonable to say that the economic downturn had an effect on just about every enterprise around the globe. Particular business models will have been more able to adjust to the additional financial stress than others but they will have still experienced an impact at some part of their operation.
Thousands of small and medium sized businesses have been forced out of business as a result of the recent economic downturn. Several of these cases will have been comparatively simple; as the general public start to decrease their spending these types of companies lose revenue, and since margins are often extremely slim in a competitive market place there was very little room to allow for this drop. It is a straightforward case of supply and demand not meeting in the middle.
Other cases were not so clear cut. There were situations where one company in a lengthy supply cycle were unable to survive and the knock-on impact would force every company within that supply chain to the brink of bankruptcy.
Job losses have obviously been a very sensitive subject to the broad majority of us. It is believed that the present number of unemployed individuals in the UK is over 2.3 million (almost 8% of the total countries’ labourforce), and many of these will have been victims of the international economic crisis.
The End of Recession
It does appear that the downturn is on its way to an end though, and that can only be good news for business. Gross domestic product (GDP) experienced a climb in the UK throughout the final quarter of 2009 and total unemployment figures fell, both of which are signals of an economic system that is healing. This isn’t a perspective embraced by everybody however.
Industry experts from the International Monetary Fund (IMF) have forecast that the UK economy will actually reduce in size over the duration of 2010 and Mervyn King, the Governor of the Bank of England has warned of the danger of wide-spread unemployment continuing. When added to the prospect of a new or perhaps hung government on its way into power in May 2010, as well as the real need to reduce a massive fiscal deficit, the foreseeable future is certainly not set in stone.
This kind of uncertainty can be used as an advantage however, and organisations that are prepared to take a few risks or that are prepared to modify their own operations to cater for a more wary target audience might be set to make excellent profits.
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Price Sensitivity
On the outside it might seem that the obvious strategy to use while the overall economy is recovering is to raise your very own retail prices again to a level that offers your company some extra margin of comfort in relation to operating costs. As the economy grows and people feel safer in their careers they will really feel secure spending extra cash, so price raises ought to be an easy thing for shoppers to take.
In fact, many companies may find that they have to keep their prices as low as possible due to the recently provoked price sensitivity amongst the general public. Many of us will have had to tighten our belts during the last couple of years, and just because the hardest of the recession seems to be over, we are not all prepared to start spending freely again.
The phrase price sensitivity represents how influential the factor of price is to customers when they are buying a particular item. If a relatively large price shift, for example increasing the cost of a car by £1000, does not provoke a big decrease in demand for that product then the product is said to be price insensitive. If a comparatively small change in price, say raising the price of a car by just £100, does see a drop in demand then that item is price sensitive. This exact same theory can also be applied to shoppers themselves, and following a phase of recession people are more likely to be price sensitive.
As a result, the marketplace at large will have great interest in the prices of the items that they are purchasing. Several people may be looking out for discounts for everyday products that they require, and particularly their grocery shopping. Many of these things are essentials however. When it comes to buying luxury items, like televisions, cars and holidays, the cost of the purchase is likely to be an much more crucial decision maker.
Businesses will be in a position to take advantage of this fact by utilising special offers and price campaigns to entice new shoppers into purchasing their own goods. Consumers will be more likely than ever to switch from their preferred brands if the price tag is perfect, and businesses that offer the best priced products are likely to stand to profit from this.
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Financial Security
People’s understanding of the economy at large as well as how it influences us all has greatly grown in light of the economic downturn. Previous purchasing decisions may well have been made with respect to the properties of the product and its price, but there is a fresh aspect that shoppers will be considering now. Financial security.
Recession Proofing
Many businesses have endured bankruptcy in the aftermath of economic collapse. This in turn has left countless numbers of consumers in a really bad situation. As individuals seek to reinvest money into savings and shareholdings they would prefer to see that the business they are investing in has some form of defense against potential recessions.
Price Guarantees
One very noticeable feature of the recent recession in the Uk was the sharp drop in the interest rate. Once this change had worked itself throughout the high street shops and monetary services organisations several people found that they were either suffering as a result or enjoying a monetary benefit. Either way, it undoubtedly raised the profile of the impact that a changing interest rate can have on everyday economic products.
Shoppers that are looking to open new savings accounts or private pensions may well be worried that if the economic downturn does indeed drag on for much longer they won’t be earning any considerable interest on their investments. In fact, the tough economy may still take a turn for the worst and interest rates could drop again. In this scenario, a savings product that offers a guaranteed rate of return turns into a very attractive choice.
The exact same can be said for customers with credit agreements. If the recession really is genuinely over and the international market starts to recover more quickly than many expect, then it may not be too long before we see a rise in interest rates. This would signify that consumers would need to pay more every month for their mortgages and loans. A business that can offer a guaranteed rate of interest that is not linked to the base rate of interest can again entice many new clients.
A similar approach was utilised by a number of companies when the rate of Value Added Tax (VAT) increased from 15% to 17.5% in early 2010. These companies would offer “price freezes” for their products for a particular period in an effort to keep current consumers and bring new clients in. This price freeze permitted a buffer period for people to adapt to the new VAT percentage.
Conclusion
Whether the recession is totally over yet or not, this has functioned as a firm indication that no company can afford to become complacent with their own position of success. Company managers should constantly look to consolidate their situation and improve their operations where possible. The businesses that are able to make it through the downturn in the economy will have learnt important lessons.
